Notes: In the 1950 to 1990 census, they asked if anyone living in the house was black. (They didn’t ask that question in the 1960 census so we don’t have that data for 1960.) In the 2000 and forward census, they asked if anyone living in the house was “black alone” (versus two or more races). Related: Black population by state.
For the next few days and the rest of the year, you’ll probably see a lot of news stories about the Fair Housing Act being signed 50 years ago on April 11, 1968.
What those stories likely won’t tell you is the percentage of U.S. blacks who own their own homes today compared to back then.
Black homeownership should be phenomenally higher a half-century after the 1968 Fair Housing Act prohibited housing discrimination based on race, color, religion, or national origin.
Here’s a clue. Other things were changing at the same time. Four months after the 1968 Fair Housing Act was passed, the 1968 Housing and Urban Development Act was passed.
Expectations were extremely high for the 1968 HUD Act. President Johnson said, “this legislation can be the Magna Carta to liberate our cities.” Despite intentions, the Act was a complete disaster for black homeownership.
The Federal Housing Administration (FHA), a U.S. government agency, had been racist as hell since it’s beginning in 1934. They wouldn’t guarantee mortgage loans in black neighborhoods. It’s called redlining. So, blacks didn’t have access to the FHA mortgage loan guarantees that were such a big part of the white homeownership boom after WWII.
Immediately after outlawing housing discrimination in 1968, the new and soon to be infamous Section 235 program in the 1968 HUD Act let low-income, white and black home buyers get FHA mortgages with down payments of only $200 and some only paid 1% interest on their mortgages.
Washington pushed local FHA offices hard to increase their lending in the inner cities so many offices relaxed their inspection and underwriting standards for inner-city mortgages.
Not infrequently a real estate speculator would buy some run-down houses in the inner city, make cosmetic repairs and sell them to inner-city, black residents who bought them using the new FHA mortgage. FHA appraisers would overestimate the value of the houses and banks would lend the money knowing FHA guaranteed they’d get paid back 100% after any foreclosures. The new homeowners would soon find out the houses needed lots of expensive repairs they couldn’t afford. Having only put $200 down (often paid by the sellers) and looking at huge repair expenses, many of the new defrauded homeowners walked away. (McClaughry, 1975.)
FHA would slowly foreclose and then leave the houses abandoned for long periods of time. Many abandoned houses were completely vandalized which hurt the value of the rest of the homes in those inner-city neighborhoods.
By 1972 in Detroit, for example, FHA had already foreclosed on 35% of the mortgages they made in 1968 in one program.
In the end, FHA bulldozed huge numbers of homes they had earlier foreclosed on and abandoned.
So, four months after the 1968 Fair Housing Act, the U.S. government took bold, historic action with the 1968 HUD Act which backfired spectacularly and ended up leaving many black homeowners and neighborhoods worse off.
Beyond the fraud and abuse, the Section 235 program also reflected a long-term trend that started when FHA was still overtly racist and which still continues today – the FHA is constantly pushing to make riskier mortgages.
After WWII, FHA was extremely stringent in what mortgages they would guarantee. Their minimum down payment was 20% for existing homes. That was lowered to 10% in 1956. Today, the minimum is 3.5%. In the same way, FHA dramatically increased the amount of money they would lend home buyers at every income level.
The FHA foreclosure rate went from O.5% in the early 1950s to a 12% foreclosure start rate from 1975 to 2013, according to the American Enterprise Institute. (Prime mortgages historically have a foreclosure rate of less than 1%.) If 12% was the average, that means many neighborhoods saw FHA foreclosure rates that were far higher.
Foreclosures devastate families financially and emotionally for years afterwards. Those high numbers of foreclosed families shouldn’t be considered acceptable collateral damage in a (spectacularly failed) government effort to increase homeownership.
High numbers of foreclosures can also devastate whole neighborhoods – not just the FHA homeowners in neighborhoods but all the homeowners in high foreclosure neighborhoods.
FHA guaranteed far too risky mortgages and that hurt neighborhoods and the individual borrowers who got in over their heads.
By 2008 when the real estate market crashed, FHA was far from the only lender selling high-risk, high-foreclosure mortgages. Nevertheless, FHA had trailblazed the way for the whole high-risk, high-foreclosure mortgage industry.
High foreclosure mortgages help explain why the black homeownership rate isn’t any higher today than it was 50 years ago when the 1968 Fair Housing Act was passed.
One more surprising data point. The black homeownership rate was 35% in the 1950 census and 42% in the 1970 census. That means despite FHA redlining and rampant housing discrimination against blacks in the United States during most of that time, the black homeownership rate actually increased 20% from 1950 to 1970.
But somehow, the black homeownership rate is the same today as it was in 1970.
We can keep doing for the next 50 years what we’ve been doing for the last 50 years and hope the results are different, or we can try something new.
The black homeownership rate should be phenomenally higher a half-century after the 1968 Fair Housing Act.
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John Wake is a real estate agent and former economist who blogs at RealEstateDecoded.com. Follow him on Twitter: @JohnWake.